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Revisiting REDUX and the $30,000 Career Status Bonus

Here's an interesting bonus question, with a twist: do you have both the military determination and the financial education to wisely invest a $30,000 cash advance on your military retirement pay?

Military service members who select the CSB/REDUX retirement system at their 15th year of service do face that challenge, in the form of a $30,000 Career Status Bonus (CSB). The entire $30,000 Career Service Bonus is received in one installment, and paid shortly after selecting CSB/REDUX and meeting their 15 year service obligation. You are eligible for the CSB/REDUX retirement system provided you entered Service on or after August 1, 1986, AND you elect to receive the $30,000 Career Status Bonus at your 15th year of service.

Does a $30,000 Career Status Bonus at year 15 seem too good to be true? It is real, but there are some strings you must untangle now to avoid getting caught up in them later: in order to receive the $30,000 CSB bonus, you must agree to complete a twenty-year active duty career AND you must realize that you are choosing REDUX, a retired pay system which effectively reduces your final retirement pay.

A $30,000 CSB means you have the cash on hand to explore the many potentially beneficial investment options for military service members, from using your CSB along with a VA home loan to purchase a home that may well appreciate in value and bring income for your retirement years, to investing for a 10% return in the military Savings Deposit Program, if you're eligible. Using your CSB as seed money can effectively help you grow that one-time $30,000 bonus into a larger financial retirement in the future, if you're prepared to start early.

$30,000 BONUS OR DEBT?

The Career Status Bonus was intended as additional retirement cash flow for military retirees. However, since the actual $30,000 is distributed before your actual military retirement, your discipline, money management skills and financial education will add up to - or detract from - your bottom line: will you be able to actually benefit from your CSB during your future military retirement? That's up to you, now.

A common mistake is for military service members to use their $30,000 CSB bonus cash now, rather than investing for military retirement later - and that can turn bonus cash into more military debt. Using your CSB to make a one-time purchase on consumable goods, like cars and vacations, will not only leave you cash poorer at retirement - a time when you need consistent cash flow to make up for the lack of military pay - it will also create more debt that you may potentially carry into your future.

THE TAXMAN TAKETH

Consider that while there are many military tax exemptions, the $30,000 CSB is not one of them: Career Service Bonus is fully taxable, which means your net cash bonus will be $25,000 or $20,000 depending upon your tax bracket.
TAKING THE CASH MEANS TAKING REDUX

Remember that your CSB cash is actually a package deal: taking the $30,000 cash bonus means choosing REDUX, a reduced retirement plan of 40 percent of basic pay for retirement after 20 years of military service. Military service members on a fast-track to early retirement will suffer the most from the reduced multiplier in the REDUX system. If this is your military track, choosing to take the $30,000 CSB and reverting to the REDUX retirement plan could cost you hundreds of thousands of dollars in future military retirement pay.

CSB AS AN INVESTMENT IN YOUR MILITARY RETIREMENT

If you do choose REDUX/CSB plan, approach your $30,000 Career Status Bonus like an early cash-out "loan" that you can profit from through smart investments and military financial planning.

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